DJIM #16 2009
Monday, April 20, 2009 at 07:42AM Is it really the banks that are facing and undergoing a ‘stress test’…or is it the trader/ investor, retail or institutional that is going through the real ‘stress test” now?.
Anxious excess money + Nervous shorts
What are we talking about?. Well, it’s simple the market is going higher and higher for weeks now and everybody is seemingly waiting for the historical to happen!. The historical is based on data that every run -up of such +% we’re witnessing is followed by a correction (usually 5-10%) alomost 90% of the time. Those underinvested or not participating day -to- day are crying out for this to occur so they can buy on the correction and than be in the market for the next leg up later in the year. As well, shorts are in a 'nervous' position in the high 870’sSPX levels as this is where many of them are set up from early in the year. It’s a break point for them of sorts, most are just waiting for this correction to get out with some profits that have evaporated in the last month or so. We feel they are starting to run for cover as we push forward, we’ve been noting this in previous Journals. So, here’s the stress test for the traders/investors!. What if the ‘historical’ doesn’t happen and the market just continues higher and doesn't make a final low before pushing higher to 1000SPX!. Most of the noise of a correction, especially in the media is comprised of ‘ Bulls’....Yes, Bulls, not Bears!. Why? .. Well, these are ones suffering from performance anxiety as their books will be questioned by their clients if they do not mirror the market’s rise. Also, they have to deal with those burning 2008 results. There is a big discrepancy in the market and you don’t know who to really believe!. This is essential for the markets health in the long run and that is we need the ‘whales’ participating with all the dry powder on their books. The hedgies are playing here, but are the MF’s and Pensions playing?. That's where the real money is!. We know the hedgies are here because most of the move is being led by the 'cheap' stock/ sectors and is quite narrow. An example of this 'whale' watch' is late last week, we had a a STT note headline, “institutional investors are backing this rally…. flows into U.S. equities were close to the highest they have been in 12 years”. On the other side, we have the NYXE CEO, make rare comments saying, “the rally was driven by short-term traders trying to take advantage of high volatility and not by large institutional or other long-term investors…The real money investors are still waiting”. Who to believe?.
All we know is the market is going up, sure the volume indicates it’s mostly short covering still, but every market move is started by short covering and we just need to go with the flow. What we do know is, no matter who is telling the truth (everyone has an agenda) is that we are near a boiling point!. A boiling point over 880 where the ‘correction’ thesis might be tossed out the window by ‘both sides’. Right now, excess money, is anxious money for asset managers. Those that need to cover and those that can’t wait any longer will need to step into/out the market with both feet!. This could be huge as in a capitulation trade of sort, not at a bottom as always discussed, but at a new short term high!.
Simply, this could be a sustained rally that has more legs than anyone is envisioning now. We’ve survived some ‘mega cap’ earnings so far (40 companies in the S&P500 have reported results, 60% beat expectations) and we have a flood of reports this week to eye. Notwithstanding, poor bank stress test results or something dismal coming out of earning reports going forward, we have to remain with a long trade bias.
One possibility now regarding the underlying bid we’ve been talking about constantly, is the excess cash is probably having second thoughts about a correction sometimes and just buying the market on small pullbacks (a day or 2 worth) putting some of the cash to work instead of waiting on the 5-10% correction. Therefore, we have this underlying bid always prevailing!
After March 23rd close...” today we surged through the 50ma and closed well above this 800 mark. (824). This close is a big positive and the Bulls finally should have the upper hand going forward. On a technical view, the next big TA levels not until the upper 800's... What's the next big catalyst?. You got a sniff of it late today and that is if bankers- brokers raise capital through private equity deals to exit the TARP! This is amost a clincher and what will drive this market closer to SPX 1000. Did we say that..1000?..lol“.
This is isn’t so funny to many a Bull with excess or a nervous Bear now, as the weather gets warmer, this possibility will get much warmer in the next few months!. We're going to get a correction, but it may not come when all are expecting one.